View from Away: An Rx for the ACA

Aetna, who over the past several years enthusiastically participated in the marketplaces the law created, is canceling plans to expand its Affordable Care Act business and reviewing its existing products.

UnitedHealth Group and Humana have recently made announcements in a similar vein. Among other things, many big insurers complain that their Obamacare divisions are losing money, requiring them to pay out more in medical bills than they collect in premiums. The law’s critics are using it as fresh evidence that Obamacare is deeply, perhaps fatally, flawed.

In fact, as ever with the Obamacare phase-in, high alarm and extreme rhetoric aren’t warranted. A healthy concern and rational policy responses are.

Experts, such as those at the Congressional Budget Office, expected that Obamacare marketplaces would be in a different place by now, with millions more insurance buyers participating. But a lot fewer people have left or have been thrown off employer-based plans in the past several years, which means fewer people have entered the marketplaces. In any insurance market, the more people participate, the better costs are spread around. Also, insurers appear to have initially misestimated the mix of people — healthy and sick — who would sign up through the marketplaces, which resulted in their costs rising higher than they anticipated.

Enrolling more people would help. The challenge for insurers is doing that while setting premiums at a place that allows insurers to cover their costs. There are reasons to think this challenge is manageable. Many consumers in Obamacare marketplaces get hefty government subsidies, which significantly cushion the blow of premium hikes. There is also good reason to believe that more people will enter ACA marketplaces as they feel the full effects of the law’s individual mandate penalty. Going without insurance will cost people a lot more on their tax bill next April than it did in the previous tax season. If Congress wanted to do something helpful, it would hike the penalty in order to compel more people to meet their responsibility to participate in the system. Federal administrators, meanwhile, must ensure that their method for adjusting costs among insurers in the marketplaces, which ensures that individual companies aren’t punished because sick people disproportionately sign up for their plans, is working as intended.

Also, experts trace many of their difficulties to competition. In many places, big insurers are being undercut by low-cost options. These lean plans generally offer narrow provider networks, and that appears to be giving them an edge among price-conscious consumers willing to limit the universe of doctors they can see in return for lower premiums. It would not be a bad thing if the big insurers that are struggling were forced to change their products to meet consumers’ preferences.

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